Asia offers beacon of hope for US and European forest-products traders

With the general malaise in the European and North American economy, forest-products manufacturers have been on the lookout for sales opportunities further afield. Today, Asia has become a major market for products from the UNECE region—China being the largest importer. China’s needs are driven both by internal demand and by remanufacture for export back to the UNECE region.

Net export of logs from the UNECE region to China grew by 28% between 2010 and 2011—the Russian Federation, the US and Canada being the major suppliers. Sawn softwood exports from North America and the Commonwealth of Independent States increased dramatically, with China consuming roughly 25% of British Columbia’s total output in 2011, 5.1 million m3 in 2011 compared with 3.2 million m3 in 2010. The Russian Federation exported 19 million m3, 37% of which went to China—a 39% increase in just one year.

British Columbia exports of softwood logs, 1995-2011

Source: Statistics Canada, 2012.

Information released today in the UNECE/FAO Forest Products Annual Market Review 2011-2012 show that despite the 2010 recovery, consumption of forest products in 2011 remained flat in most of the UNECE region, 10% lower than before the global financial crisis. But in the Russian Federation, consumption grew by 9%. The 56 countries of the UNECE region have 42% of the global forest area, produce 59% and consume 56% of the world’s forest products, and are responsible for 60% of the imports and 75% of the exports of these products.

The Russian Federation’s accession to the World Trade Organization in late August this year can only have a positive effect on the development of global forest products trade because of the major reductions in the export and import tariffs on forest products.

Consumption of forest products in the UNECE region, 2007-2011

Housing sector. One of the major consumers of forest products, the housing sector, is forecast to remain flat in Western Europe during all of 2012. In North America, housing starts are expected to increase by 15% but will nevertheless only reach around 45% of the 2006 level. The Russian Federation, on the other hand, is forecasting a 5% increase in housing construction, as well as an increase in the share of wood construction.

Housing starts in the UNECE region, 2006-2012

Other markets. Despite the effects of the so-called “Arab Spring”, North Africa continues to be an important importer of European wood products (40% of the sawn softwood exports out of Europe). And South America is manufacturing products that directly or indirectly compete with products from the UNECE region, for example increasing their share of global pulp capacity from 11% to 28% in the last 20 years.

Industrial roundwood. In 2011, consumption in the UNECE region was up for the second year in a row, but was nevertheless 14% lower than before the global financial crisis. The biggest increase in log consumption was in the Commonwealth of Independent States, where higher production at sawmills and plywood plants in the Russian Federation and Ukraine resulted in increased demand.

Sawn hardwood. After a promising start in 2011, consumption across the UNECE region fell in the second half of the year. Globalization in the furniture sector, combined with weakness in the construction and housing sectors, led to a decline in demand for appearance-grade sawn hardwood and increasing exports of these grades to other markets, particularly China, which has increased imports from 1.5 million m3 in 2007 to 2.5 million in 2011. There are, however, early signs of a trend towards “reshoring” of furniture and cabinet manufacturing within the UNECE region.

Wood-based panels. Growth in consumption was significant only in the Commonwealth of Independent States, where at 17.5% it was almost back to pre-crisis levels. Europe showed some growth (4.2%) but in North America consumption contracted (-4.6%).

Paper and paperboard. Because of mill closures in 2011 and 2012, North America and Europe lost over 7.4 million tonnes of production capacity. While the market recovery for chemical market pulp in early 2012 is almost entirely driven by Asian—primarily Chinese—demand, a full rebound in paper and paperboard commodity segments this year is doubtful. European and North American demand for pulp, paper and paperboard has fallen as a result of either mill closures or reduced print media usage. Electronic media, bill distribution and e-book options are impacting the pulp and paper industry.

Consumption of paper and paperboard in the UNECE region, 2007-2011

Source: UNECE/FAO TIMBER database, 2012.

Wood energy. In the UNECE region, wood energy is the main source of renewable energy (50% approx.) and most of the demand is concentrated in the European Union. Demand is increasing within Europe, as wood is the cornerstone of the EU’s “20% renewable by 2020” policy.In the US and Canada, wood energy use is falling, owing to the still depressed levels of timber harvest, the availability of inexpensive natural gas, concerns about the greenhouse-gas neutrality of wood energy, and waning support for subsidies. The Commonwealth of Independent States (mainly the Russian Federation) and North America have all increased their output of wood pellets, with demand driven by buyers supplying the European market.

Carbon markets. These continued to grow in total volume and value in 2010-2011, reaching 10.2 billion tonnes ($176 billion). Carbon trade has, however, suffered from the prolonged financial and economic crises in Europe, the political obstacles in the US, slow progress in the United Nations Framework Convention on Climate Change (UNFCCC) negotiation process, and the absence of full operational details for REDD+.

Policy and regulatory implications for forest products markets.

Overall, measures are being enacted to promote certainty and predictability in timber markets in the UNECE region, although gaps exist as the full implications of the Russian Federation’s accession to the WTO still unfold. On the other hand, clarity has emerged on the treatment of Land Use, Land Use Change and Forestry (LULUCF) and harvested wood products within the climate-change regime.

International and many national policies are increasingly supportive of wood-based energy and efforts are intensifying to guarantee the sustainability of solid biofuels and measures against illegal logging and trade of timber.